Penermon v. Wells Fargo Home Mortgage

Filing 31

ORDER by Judge Kandis A. Westmore granting in part and denying in part 14 Motion to Dismiss. Plaintiff shall file her second amended complaint within 14 days of this order. (kawlc1, COURT STAFF) (Filed on 6/11/2014)

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United States District Court
Northern District of California

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CHARLOTTE PENERMON,

Case No.: 14-cv-00065-KAW

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Plaintiff,
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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT
WELLS FARGO BANK, N.A.’S
MOTION TO DISMISS

v.
WELLS FARGO BANK, N.A.,

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Defendant.

(Dkt. No. 14)

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Northern District of California

United States District Court

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On February 24, 2014, Defendant Wells Fargo Bank, N.A. filed a motion to dismiss

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Plaintiff Charlotte Penermon’s first amended complaint alleging that Wells Fargo violated the

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California Homeowner Bill of Rights (hereafter “HBOR”).

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On April 17, 2014, the Court held a hearing, and after careful consideration of the parties

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arguments and the applicable legal authority, for the reasons set forth below, the Court GRANTS

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IN PART AND DENIES IN PART Wells Fargo's motion to dismiss.

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I.

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BACKGROUND

On February 12, 2008, Plaintiff Charlotte Penermon refinanced her mortgage loan,

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secured by a deed of trust, with Wachovia Mortage, FSB (“Wachovia”) for the Subject Property

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located at 4533 San Carlos Ave., Oakland, California. (Pl.'s First Am. Compl., “FAC,” Dkt. No.

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12 ¶ 8.) In 2009, Wachovia merged with Defendant Wells Fargo. Id.

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Plaintiff asserts that in January 2013, due to deteriorating health conditions, she sent

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Wells Fargo an authorization to release information to her son, Enrico Penermon ("Enrico") so

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that he could communicate with Wells Fargo on her behalf. (FAC ¶ 9.)

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In February 2013, Enrico allegedly contacted Wells Fargo to request a loan modification,

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and Plaintiff was assigned a single point of contact ("SPOC"), Britni Ridge, as her Wells Fargo

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Home Mortgage home preservation specialist. (FAC ¶¶ 10-11.) On March 14, 2013, Plaintiff

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received a letter from Britni Ridge with a loan modification application, which stated that during

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the review period, Plaintiff's home would not be referred to foreclosure or sold at a foreclosure

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sale. (FAC ¶ 12.) The letter also provided that if Plaintiff did not qualify for a loan

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modification, Wells Fargo would work with Plaintiff to explore other options available. Id.
In April 2013, Enrico sent in the loan modification application along with the required

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documents to Wells Fargo. (FAC ¶¶ 13, 39.) Despite this submission, Wells Fargo never

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acknowledged receipt of the application, and Plaintiff never received a written determination

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regarding the loan modification application. Id. Plaintiff further alleges that after the

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submission of the loan modification application, Enrico attempted to contact SPOC Ridge

application. (FAC ¶ 14.) SPOC Ridge, however, never returned any of Enrico's calls. Id.

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Northern District of California

numerous times, and left her several messages, to inquire about the status of the modification

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United States District Court

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After not receiving any response from SPOC Ridge, Enrico called Wells Fargo and spoke with

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another Wells Fargo representative, at which time he was informed that SPOC Ridge was the

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assigned single point of contact and that she would get back to him with the result of the

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modification application. (FAC ¶ 15.)
Plaintiff also alleges that in April 2013, Enrico called Wells Fargo to make a single

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payment, but the Wells Fargo representative refused to take the payment unless it was for the

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entire amount owed, which, according to the representative, was approximately $3,000. (FAC ¶

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16.)
On May 20, 2013, a Notice of Default (“NOD”) was recorded with the Alameda County

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Recorder's Office. (Def.’s Req. for Judicial Notice, “RJN,” Dkt. No. 15, Ex. H.) According to

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the NOD, Plaintiff owed $9,441.65 as of May 16, 2013. Id. Plaintiff, however, asserts that she

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made, and Defendant accepted, payments until February 2013. (FAC ¶ 17.) Plaintiff also

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believes that the amount listed on the NOD was incorrect, since the Wells Fargo representative

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informed Enrico that Plaintiff owed $3,000 in April and one month later, the NOD provided that

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she owed $9,441.65 when the mortgage payment was approximately $1,400 a month. Id.

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On August 23, 2013, Plaintiff received a Notice of Trustee's Sale with a scheduled sale

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date of September 10, 2013. (FAC ¶ 18.) On September 30, 2013, a Trustee's Deed Upon Sale

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was recorded with the Alameda County Recorder's Office. (FAC ¶ 20; RJN, Ex. K.)
On December 4, 2013, Plaintiff filed this action in Alameda County Superior Court. On

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January 6, 2014, Wells Fargo removed the case to federal court. On January 13, 2014, Wells

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Fargo filed a motion to dismiss the initial complaint.
Instead of opposing Wells Fargo’s initial motion to dismiss, Plaintiff filed a first

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amended complaint on February 3, 2014. (FAC, Dkt. No. 12.) Plaintiff's amended complaint

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alleges seven causes of action: (1) Violation of Cal. Civ. Code § 2924; (2) Violation of Cal. Civ.

2923.7; (5) Violation of Cal. Civ. Code § 2924.10; (6) Negligence; and (7) Unfair Business

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Northern District of California

Code § 2924.17; (3) Violation of Cal. Civ. Code § 2923.6; (4) Violation of Cal. Civ. Code §

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United States District Court

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Practices - Violation of Business and Professions Code § 17200 et. seq. The second through

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fifth causes of action are for violations of the California Homeowner Bill of Rights (collectively

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referred to as the “HBOR claims”), which went into effect on January 1, 2013.

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On February 24, 2014, Wells Fargo filed a motion to dismiss the first amended

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complaint asserting, among other arguments, that Plaintiff’s HBOR claims are preempted by

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the Home Owners’ Loan Act (hereafter “HOLA”). (Def.'s Mot. to Dismiss the First Am.

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Compl., “Def.’s Mot.,” Dkt. No. 14.) On March 12, 2014, Plaintiff filed her opposition. (Pl.’s

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Opp’n, Dkt. No. 19.) On March 17, 2014, Wells Fargo filed its reply. (Def.’s Reply, Dkt. No.

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22.)

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On April 17, 2014, the Court held a hearing and asked the parties to file supplemental

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briefing on the remedies available for wrongful foreclosure in violation of Civil Code § 2924.

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Plaintiff filed her brief on April 24, 2014. (Pl.’s Suppl. Brief, Dkt. No. 28.) Wells Fargo filed

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its supplemental brief in response of May 1, 2014. (Def.’s Suppl. Brief, Dkt. No. 29.)
II.

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A.

LEGAL STANDARD

Motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)
Under Federal Rule of Civil Procedure 12(b)(6), a party may file a motion to dismiss

based on the failure to state a claim upon which relief may be granted. A motion to dismiss

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under Rule 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. Navarro

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v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

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In considering such a motion, a court must "accept as true all of the factual allegations

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contained in the complaint," Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam) (citation

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omitted), and may dismiss the case or a claim "only where there is no cognizable legal theory" or

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there is an absence of "sufficient factual matter to state a facially plausible claim to relief."

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Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citing

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Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro, 250 F.3d at 732) (internal quotation

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marks omitted).
A claim is plausible on its face when a plaintiff "pleads factual content that allows the

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Northern District of California

court to draw the reasonable inference that the defendant is liable for the misconduct alleged."

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United States District Court

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Iqbal, 556 U.S. at 678 (citation omitted). In other words, the facts alleged must demonstrate

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"more than labels and conclusions, and a formulaic recitation of the elements of a cause of action

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will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
"Threadbare recitals of the elements of a cause of action" and "conclusory statements" are

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inadequate. Iqbal, 556 U.S. at 678; see also Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140

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(9th Cir. 1996) ("[C]onclusory allegations of law and unwarranted inferences are insufficient to

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defeat a motion to dismiss for failure to state a claim."). "The plausibility standard is not akin to

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a probability requirement, but it asks for more than a sheer possibility that a defendant has acted

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unlawfully . . . When a complaint pleads facts that are merely consistent with a defendant's

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liability, it stops short of the line between possibility and plausibility of entitlement to relief."

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Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557) (internal citations omitted).

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Generally, if the court grants a motion to dismiss, it should grant leave to amend even if

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no request to amend is made "unless it determines that the pleading could not possibly be cured

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by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (citations

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omitted).

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B.

Request for Judicial Notice

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As a general rule, a district court may not consider any material beyond the pleadings in

F.3d 668, 688 (9th Cir. 2001). A district court may take notice of facts not subject to reasonable

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dispute that are “capable of accurate and ready determination by resort to sources whose

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accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b); United States v. Bernal–Obeso,

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989 F.2d 331, 333 (9th Cir.1993). “[A] court may take judicial notice of ‘matters of public

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record,’” Lee, 250 F.3d at 689 (citing Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th

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Cir. 1986)), and may also consider “documents whose contents are alleged in a complaint and

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whose authenticity no party questions, but which are not physically attached to the pleading”

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without converting a motion to dismiss under Rule 12(b)(6) into a motion for summary

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Northern District of California

ruling on a 12(b)(6) motion to dismiss for failure to state a claim. Lee v. City of Los Angeles, 250

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United States District Court

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judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by

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Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). The court need not accept as

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true allegations that contradict facts which may be judicially noticed. See Mullis v. United States

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Bankruptcy Ct., 828 F.2d 1385, 1388 (9th Cir. 1987).
III.

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A.

DISCUSSION

Request for Judicial Notice
As a preliminary matter, Wells Fargo asks that the Court take judicial notice of a number

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of documents in support of its motion to dismiss. (Req. for Judicial Not., “RJN,” Dkt. No. 15.)

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The documents are purportedly true and correct copies of: A) Adjustable Rate Mortgage Note,

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dated February 12, 2008; B) a Deed of Trust recorded with the Alameda County Recorder’s

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Office on February 21, 2008; C) a Certificate of Corporate Existence dated April 21, 2006 issued

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by the Office of Thrift Supervision certifying that World Savings Bank, FSB, is a federal savings

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bank; D) a letter dated November 19, 2007 issued by the Office of Thrift Supervision authorizing

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a name change from World Savings Bank, FSB to Wachovia Mortgage, FSB; E) the Charter of

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Wachovia Mortgage, FSB; F) Official Certification of the Comptroller of the Currency stating

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that effective November 1, 2009, Wachovia Mortgage, FSB converted to Wells Fargo Bank

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Southwest, N.A., which then merged with and into Wells Fargo Bank, N.A.; G) Printout form the

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website of the Federal Deposit Insurance Corporation, dated September 2, 2010, showing the

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history of Wachovia Mortgage, FSB; H) Notice of Default and Election to Sell Under Deed of

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Trust, dated May 16, 2013, and recorded with the Alameda County Recorder on May 20, 2013;

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I) Substitution of Trustee, dated May 1, 2013, and recorded with the Alameda County Recorder

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on May 16, 2013; J) Notice of Trustee’s Sale Trust, dated August 21, 2013, and recorded with

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the Alameda County Recorder on August 23, 2013; K) Trustee Deed upon Sale dated September

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24, 2013, and recorded with the Alameda County Recorder on September 30, 2013; L) Office of

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Thrift Supervision Opinion Letter, dated July 22, 2013, No. P-2003-5; M) Office of the

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Comptroller of Currency, OCC Bulletin 2011-47, dated December 8, 2011; N) Office of the

Comptroller of Currency, OCC Bulletin 2013-32, dated November 20, 2013; P) Federal Home

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Northern District of California

Comptroller of Currency, OCC Bulletin 2012-2, dated January 6, 2012; O) Office of the

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United States District Court

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Loan Bank Board, General Counsel Letter, dated August 13, 1985; and Q) National Mortgage

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Settlement (NMS) Consent Judgment in United States v. Bank of America Corp., et al., Case No.

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1:12-cv-00361-RMC (ND Cal. April 4, 2012).

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Plaintiff did not file an opposition to Defendant’s request for judicial notice, and so

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Plaintiff is not deemed to dispute the authenticity of any of the exhibits. Exhibit A is a copy of

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the Adjustable Rate Mortgage Note that is referred to in the first amended complaint. Since

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Plaintiff has not questioned the authenticity of this copy, the Court will take judicial notice of it.

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Exhibits B and H through K are true and correct copies of official public records, whose

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authenticity is capable of accurate and ready determination by resort to sources whose accuracy

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cannot reasonably be questioned. See Fed. R. Evid. 201(b).

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As for Exhibits C through G and L through P, Defendant argues that they are appropriate

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for judicial notice because they reflect the official acts of executive branch of the United States

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government. The California Evidence Code provides that judicial notice is proper for documents

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that reflect the acts of executive agencies of the United States government. See California

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Evidence Code§ 452 (c) (judicial notice may be taken of official acts of the legislative, executive

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or judicial departments). As Plaintiff has not objected to the authenticity of these exhibits, the

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Court will take judicial notice of them.

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As to Exhibit Q, the Court will take judicial notice of the National Mortgage Settlement

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(NMS) Consent Judgment, as judicial notice may be taken of court records. United States v.

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Wilson, 631 F.2d 118, 119 (9th Cir. 1980).
Accordingly, the Court GRANTS Wells Fargo’s request for judicial notice.

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B.

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Whether the Home Owners’ Loan Act (HOLA) preempts Homeowner Bill of Rights
(HBOR) claims.

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Wells Fargo argues that the HOLA, 12 U.S.C. § 1461 et. seq., preempts all of Plaintiff's

federal savings bank (FSB)-originated loan, (2) Plaintiff agreed to the loan terms stating that the

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loan would be governed by HOLA, whether it was held by the originating FSB or another entity,

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and (3) since Plaintiff's state law HBOR claims are related to the "processing" or "servicing" of

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Northern District of California

HBOR claims for three reasons: (1) HOLA preemption attaches to and survives the transfer of a

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United States District Court

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her mortgage, the claims are preempted by HOLA. (Def.'s Mot. at 2-9.)

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In opposition, Plaintiff argues that Wells Fargo, a national bank, was the one that

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engaged in the wrongful conduct, and thus, HOLA is not implicated and does not preempt

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Plaintiff’s HBOR claims. (Pl.'s Opp'n at 3-5.)

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These arguments necessitate a discussion on the legislative history of HOLA, why it was

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enacted, and whether HOLA preemption is applicable to Wells Fargo under the circumstances of

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this case.

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1.

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Congress enacted HOLA to regulate savings associations or banks "at a time when record

History of HOLA

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numbers of homes were in default and a staggering number of state-chartered savings

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associations were insolvent." Silvas v. E* Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir.

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2008). Regulators believed that HOLA would provide a uniform set of regulations and ensure

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the stability of federal thrifts "by efficiently delivering low-cost credit to the public free from

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undue regulatory duplication and burden." 12 C.F.R. § 560.2(a). HOLA specifies that one of its

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primary regulatory goals is to encourage thrifts to provide credit for housing and other goods and

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services in a safe and sound manner. 12 U.S.C.A. § 1464(a)(2). It imposes rules on federal

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savings associations and banks "according to nationwide best practices." Rijhwani v. Wells

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Fargo Home Mortgage, Inc., C 13-05881 LB, 2014 WL 890016, at *14 (N.D. Cal. Mar. 3,

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2014). Congress created the Office of Thrift Supervision (OTS) to administer HOLA and

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oversee the federal savings associations. 12 C.F.R. § 560.2(a). Congress provided OTS with

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plenary power to preempt state laws affecting the operations of federal savings associations

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when deemed appropriate to serve various ends, including “to facilitate the safe and sound

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operation of federal savings associations, to enable federal savings associations to conduct their

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operations in accordance with the best practices of thrift institutions in the United States, or to

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further other purposes of HOLA.” 12 C.F.R. § 560.2(a). Through its regulations, OTS made

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clear that
OTS hereby occupies the entire field of lending regulation for federal savings
associations. OTS intends to give federal savings associations maximum flexibility to
exercise their lending powers in accordance with a uniform federal scheme of regulation.
Accordingly, federal savings associations may extend credit as authorized under federal
law, including this part, without regard to state laws purporting to regulate or otherwise
affect their credit activities . . .

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Northern District of California

United States District Court

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Silvas, 514 F.3d at 1005 (quoting 12 C.F.R. § 560.2(a)) (emphasis in original). Section 560.2(b)
lists the types of laws that are preempted, including "state laws purporting to impose
requirements" with respect to "[p]rocessing, origination, servicing, sale or purchase of, or
investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(10). State laws, however, are
not preempted “to the extent that they only incidentally affect the lending operations of Federal
savings associations or are otherwise consistent with the purposes of paragraph (a) of this
section.” Id. § 560.2(c). For example, state contract, property and tort laws are not preempted if
they meet the above requirements. Id. Preemption also does not apply to any other law that
OTS reviews and finds "[f]urthers a vital state interest" and "[e]ither has only an incidental effect
on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a)" of
§ 560.2.
The Ninth Circuit has held that in order to analyze whether state law is preempted
by HOLA:
. . . the first step [is] to determine whether the type of law in question is listed in
paragraph (b). If so, the analysis will end there; the law is preempted. If the law
is not covered by paragraph (b), the next question is whether the law affects

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lending. If it does, then, in accordance with paragraph (a), the presumption arises
that the law is preempted. This presumption can be reversed only if the law can
clearly be shown to fit within the confines of paragraph (c). For these purposes,
paragraph (c) is intended to be interpreted narrowly. Any doubt should be
resolved in favor of preemption.

question is whether the HOLA preemption analysis is applicable to Wells Fargo, since Wells

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Fargo is not a federal savings association. The Ninth Circuit has not yet addressed this issue and

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there is a recognized split among the district courts in this circuit, which adopt one of two views.

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The majority have held that “the status of the originator of the loan determines the applicability

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of HOLA to a particular loan.” Rijhwani, 2014 WL 890016, at *6; see also Marquez v. Wells

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Fargo Bank, N.A., No. C 13–2819 PJH, 2013 WL 5141689, at *4 (N.D.Cal. Sept. 13, 2013).

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Wells Fargo relies on Marquez v. Wells Fargo Bank, N.A., C 13-2819 PJH, 2013 WL 5141689

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Northern District of California

Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Cir. 2008). Here, the threshold

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United States District Court

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(N.D. Cal. Sept. 13, 2013), which found that several statutes in California’s non-judicial

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foreclosure scheme were “preempted by HOLA, as it imposes requirements on 'processing' or

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'servicing' of mortgages, or on the 'terms of credit,' and also seeks to impose an obligation that

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affects lending.” (Def. Mot. at 7-8; see, e.g., Gabali v. OneWest Bank, FSB, 2013 U.S. Dist.

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LEXIS 47193, 2013 WL 1320770 at *10 (N.D. Cal. March 29, 2013).) Marquez, however,

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determined that these claims were preempted without a full analysis of HOLA, undoubtedly due,

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in part, to Plaintiff’s opposition, which, while advocating against HOLA preemption, was

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stricken as untimely filed. Marquez, 2013 WL 5141689, at *3; see Plaintiff’s Response to

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Defendant’s Motion to Dismiss, Marquez v. Wells Fargo, N.A., Case No. C 13-2819 PJH (N.D.

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Cal. July 30, 2013), ECF No. 28.

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A minority of courts, however, have recently “questioned the logic of allowing a

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successor party such as Wells Fargo to assert HOLA preemption, especially when the wrongful

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conduct alleged was done after the federal savings association or bank ceased to exist.”

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Rijhwani, 2014 WL 890016, at *7; see also Gerber v. Wells Fargo Bank, N.A., CV 11-01083-

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PHX-NVW, 2012 WL 413997, at *4 (D. Ariz. Feb. 9, 2012) (holding that HOLA preemption

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does not apply to Wells Fargo because it is not a federal savings association); Leghorn v. Wells

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Fargo Bank, N.A., 950 F. Supp. 2d 1093, 1108 (N.D. Cal. 2013); Rhue v. Wells Fargo Home

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Bank's conduct before its merger with Wells Fargo would be governed by HOLA where

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appropriate, while Wells Fargo's own conduct after that date would not); Rodriguez v. U.S. Bank

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Nat. Ass'n, 2012 WL 1996929, at *7 (N.D. Cal. June 4, 2012) (holding that whether HOLA

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governs the action depends on when the alleged conduct occurred); Ramirez v. Wells Fargo

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Bank, N.A., 2011 WL 1585075, at *7 (N.D. Cal., Apr.27, 2011) (declining to find HOLA

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preemption of claims arising out of post-merger conduct). Many of these courts "have applied

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HOLA preemption only to conduct occurring before the loan changed hands from the federal

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savings bank to the entity not governed by HOLA." Rijhwani, 2014 WL 890016 at *7 (citations

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omitted). Essentially, since "preemption is not some sort of asset that can be bargained, sold, or

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transferred,” Gerber, 2012 WL 413997, at *4, courts look to the "nature of the alleged claims

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Northern District of California

Mortgage, Inc., 2012 WL 8303189, at *3 (C.D. Cal. Nov. 27, 2012) (holding that World Savings

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United States District Court

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that are the subject of the suit . . . [World Savings Bank's] conduct before its merger with Wells

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Fargo on November 1, 2009 would be governed by HOLA where appropriate, while Wells

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Fargo's own conduct after that date would not." Rijhwani, 2014 WL 890016 at *7 (quoting

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Rhue, 2012 WL 8303189, at * 3).

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2.

Rise of Loan Modifications

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On December 1, 2008, the National Bureau of Economic Research announced that in

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December 2007, the economy had entered into the worst recession since the Great Depression.1

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The economic downturn was caused in part by a mortgage crisis. See Arsen Sarapinian, Fighting

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Foreclosure: Using Contract Law to Enforce the Home Affordable Modification Program

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(HAMP), 64 HASTINGS L.J. 905 (2013). The effects were even more swift and dire in states with

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non-judicial foreclosure statutes. Id. at 912. Borrowers in all states were unable to obtain

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foreclosure relief through the court system. Id. As a result, “subprime lending, increased

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homeownership, and economic instability led to an unprecedented home foreclosure crisis,

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causing millions of Americans to lose their homes.” Id. In response to this crisis, loan

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modifications became a matter of national policy, and the federal government enacted various

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NAT’L BUREAU OF ECON. RESEARCH, Determination of the December 2007 Peak in Economic
Activity, http://www.nber.org/cycles/dec2008.html (2008).
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programs designed to assist borrowers in avoiding foreclosure. Id. at 912-13. One such program

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was the Home Affordable Modification Program (HAMP) which resulted in more than one

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million homeowners receiving a permanent modification by mid-2012. See U.S. DEP’T OF THE

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TREASURY, MAKING HOME AFFORDABLE PROGRAM PERFORMANCE REPORT THROUGH MAY 2012

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(2012), available at http://www.treasury.gov/initiatives/financial-stability/results/mha-

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reports/pages/default.aspx.

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3.

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In response to the mortgage and foreclosure crisis, the California Legislature enacted the

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Enactment of the Homeowner Bill of Rights

Homeowner Bill of Rights (HBOR) on January 1, 2013, shortly after the finalization of the

and hold banks accountable for exacerbating it.3 HBOR’s purpose is to ensure that homeowners

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Northern District of California

National Mortgage Settlement (NMS).2 This law was created to combat the foreclosure crisis

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United States District Court

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"who may qualify for a foreclosure alternative are considered for, and have a meaningful

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opportunity to obtain, available loss mitigation options," such as loan modifications or other

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alternatives to foreclosure. See A.B. 278 § 1(b); Rijhwani, 2014 WL 890016, at *8. Most

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importantly, HBOR provides borrowers with a private right of action for certain material

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violations of HBOR, including California Civil Code §§ 2923.6 (dual-tracking), 2923.7 (single

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Under the NMS, five of the country's largest mortgage servicers, including Wells Fargo, agreed
to provide $20 billion worth of mortgage-related relief to homeowners and to abide by new
servicing standards meant to address some of the worst foreclosure abuses. See United States v.
Bank of Am., No. 1:12-cv-00361-RMC (D.D.C. Apr. 4, 2012). Under the NMS, however, only
state attorneys general can sue noncompliant banks. To address this issue, the California
Legislature passed HBOR to give borrowers a private right of action and to apply these
requirements to all servicers, not just the five NMS signatories who were already subject to
similar standards. See also California Homeowner Bill of Rights Takes Key Step to Passage,
State of Cal. Dep’t of Justice, Office of the Attorney Gen. (June 27, 2012),
http://oag.ca.gov/news/press-releases/california-homeowner-bill-rights-takes-key-step-passage
("The goal of the [HBOR] is to take many of the mortgage reforms extracted from banks in a
[N]ational [M]ortgage [S]ettlement and write them into California law so they could apply to all
mortgage-holders in the state.").
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See CALIFORNIA HOMEOWNER BILL OF RIGHTS COLLABORATIVE, Litigating Under the
California Homeowner Bill of Rights (2014), http://calhbor.org/2014/01/07/updated-practiceguide-litigating-under-the-homeowner-bill-of-rights-2/; see also A.B. 278 Bill Analysis,
available at http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_02510300/ab_278_cfa_20120702_105700_asm_floor.html (last visited April 16, 2014).
11

1

point of contact), 2924.10 (acknowledgment of receipt), and 2924.17 (verification of

2

documents). See Cal. Civ. Code §§ 2924.12(a)(1),(b).
HBOR, however, is limited in that it only applies to foreclosures of first liens on

3
4

owner-occupied, one-to-four unit properties. Cal. Civ. Code § 2924.15(a). Further, it only

5

provides procedural protections to foster alternatives to foreclosure; it does not entitle a

6

borrower to a loan modification. Cal. Civ. Code § 2923.4(a). Lastly, as long as the

7

National Mortgage Settlement is effective, a signatory who complies with the terms of the

8

NMS with respect to the individual borrower is not liable under HBOR.4 Cal. Civ. Code §

9

2924.12(g).
Whether Plaintiff’s HBOR claims are preempted by HOLA.

Wells Fargo contends that HOLA preempts all of Plaintiff's HBOR claims on the

12
Northern District of California

4.

11

United States District Court

10

grounds that HOLA preemption attaches to, and survives the transfer of, a federal savings bank

13

(FSB)-originated loan, that Plaintiff agreed to the loan terms stating that the loan would be

14

governed by HOLA, whether it was held by the originating FSB or someone else, and that since

15

Plaintiff’s state law HBOR claims are related to the "processing" or "servicing" of her mortgage,

16

the claims are preempted by HOLA. (Def.'s Mot. at 2-9.)
To support its contention that a HOLA preemption defense transferred to Wells Fargo

17
18

through the merger, Wells Fargo cites a 2003 opinion letter from the Office of Thrift Supervision

19

(OTS) that provides that a New Jersey state law creating a multifaceted compliance scheme is

20

partially preempted by HOLA when applied to federal savings associations. (RJN, Ex. L at 1;

21

Def.’s Mot. at 4.) The legal opinion letter was issued at the request of a federal savings

22

association to address to how the state law applied to federal savings associations. It does not

23

address whether HOLA preemption applies to the actions of national banks that acquire federal

24

savings loans. In fact, the letter states that the FSA enjoys HOLA preemption because

25

“Congress gave OTS, not the States, the task of determining the best practices for federal

26

savings associations and creating uniform rules. OTS conducts regular examinations of thrift

27

4

28

HBOR contains similar provisions to those in the NMS, including the prohibition of dual
tracking and the SPOC requirement, both of which Wells Fargo allegedly violated in this action,
and so it would unable to avail itself of the safe harbor provision.
12

1

lending operations for safety and soundness and compliance with established consumer

2

protections.” (RJN, Ex. L at 5.) First, Wells Fargo is not regulated by OTS. Second, Wells

3

Fargo offers no compelling argument that the underlying facts relied upon in the letter bear any

4

resemblance to the facts of this case or that the opinion letter should be afforded any deference

5

here. Moreover, HOLA is strictly limited to federal savings institutions and is not intended to

6

affect the operations of national banks, such as Wells Fargo. See Gerber, 2012 WL 413997, at

7

*4 (national banks do not enjoy HOLA preemption for their own actions by acquiring a federal

8

savings loan); 12 C.F.R. § 560.2 (OTS only regulates federal savings associations). Thus, while

9

Wells Fargo may invoke HOLA preemption if the alleged wrongdoing arises out of Wachovia’s

10

pre-merger conduct, where Wells Fargo’s own conduct is the subject of litigation, HOLA does

11

not necessarily apply.

Northern District of California

United States District Court

12

Wells Fargo further contends that it is shielded by HOLA on the grounds that Plaintiff

13

agreed to the loan terms providing that the loan would be governed by HOLA, whether it was

14

held by the originating FSB or someone else. (Def.’s Mot. at 5-6.) In support of this argument,

15

Wells Fargo cites to Mata v. Wells Fargo Bank, N.A., 2013 U.S. Dist. LEXIS 108197, at *11-12

16

(C.D. Cal. July 31, 2013), where the court held that "the fact that World Savings Bank merged in

17

Wachovia and later merged into Wells Fargo does not render HOLA inapplicable." (Id. at 6; see

18

also Def.'s Reply at 2.) The cases cited are largely unanchored by statutory analysis or legal

19

reasoning, and generally provide legal conclusions without analyzing their holdings by citing

20

either “(a) nothing, (b) each other, or (c) generic statements of law about corporations

21

succeeding to the rights of the entities they acquire.” Gerber, 2012 WL 413997, at *4. In

22

essence, the cases Defendant cites shield national banks such as Wells Fargo, even though they

23

are not federal savings banks, by simply concluding that an automatic HOLA preemption applies

24

to loans originated by a federal savings bank. This Court has similarly found that HOLA

25

preempted causes of action for wrongful foreclosure when the conduct complained of occurred

26

at the time of origination. See, e.g., McDonald v. Wells Fargo Bank, N.A., CV 13-02334-KAW,

27

2013 WL 6512881, at *6 (N.D. Cal. Dec. 12, 2013) (pre-HBOR case finding HOLA preemption

28

for allegedly fraudulent conduct at the time of loan origination). It is true that many courts in

13

1

this district, including this one, have determined that “the status of the originator of the loan

2

determines the applicability of HOLA to a particular loan.” See Rijhwani, 2014 WL 890016, at

3

*6. In the majority of those cases, however, “the plaintiffs either failed to argue otherwise or

4

conceded the issue, the upshot being that the courts never had to grapple with it; instead, the

5

courts simply concluded, without much analysis, that HOLA preemption applied.” Id. (citing

6

Pratap v. Wells Fargo Bank, N.A., C 12-06378 MEJ, 2013 WL 5487474, at *3-5 (N.D. Cal. Oct.

7

1, 2013); Graybill v. Wells Fargo Bank, N.A., 953 F. Supp. 2d 1091, 1109 (N.D. Cal. 2013);

8

Preciado v. Wells Fargo Home Mortgage, No. 13–00382 LB, 2013 WL 1899929, at *3–4 (N.D.

9

Cal. May 7, 2013); Plastino v. Wells Fargo Bank, 873 F.Supp.2d 1179, 1184 n.3 (N.D. Cal.

729 F. Supp. 2d 1119, 1126 (N.D. Cal. 2010).) Indeed, this action marks the first time that this

12
Northern District of California

2012); Appling v. Wachovia Mortg., FSB, 745 F.Supp.2d 961, 971 (N.D. Cal. 2010); DeLeon,

11

United States District Court

10

court has been afforded the opportunity to address HOLA preemption in light of the recently

13

enacted HBOR statute, when the complained of conduct was committed by Wells Fargo rather

14

than by a federal savings bank.

15

Since the Ninth Circuit has not decided this issue, the previous holdings do not mean that

16

Wells Fargo is automatically and permanently imbued with a preemption defense so long as the

17

loan originated with a federal savings bank. If Wells Fargo’s position that HOLA preemption

18

shields its own post-acquisition conduct were adopted, Wells Fargo would have license to

19

violate the terms of the NMS, of which it was a signatory, with impunity and to oust borrowers

20

from their homes without any private recourse, so long as their loans originated with a federal

21

savings bank. To find that some homeowners cannot avail themselves of HBOR protection

22

based solely on their original lender, and without regard to the entity engaging in the otherwise

23

illegal conduct, is arbitrary at best, and, at worst, could result in a gross miscarriage of justice,

24

while also running afoul of one of the original purposes of HOLA enactment: consumer

25

protection.

26

HOLA concerns laws "affecting the operations . . . of federal savings associations, with

27

an aim to . . . facilitate the safe and sound operation" of those associations. 12 C.F.R. § 560.2(a).

28

As discussed above, the reason for HOLA’s enactment was to encourage lending and to ensure

14

1

stability in federal savings loans. See discussion supra Part III.B.1. HOLA was not enacted to

2

provide a defense to actions that would otherwise violate consumer protection laws. Moreover,

3

it is unlikely that HOLA contemplated the subsequent mortgage crisis and the resulting mergers

4

of federal savings banks into national banks or loan servicing as it exists today.
Accordingly, the Court adopts the minority view of HOLA preemption and finds that the

5
6

court must consider “whether the alleged violations took place when the banking entity was

7

covered by HOLA.” Valtierra, 2011 WL 590596 at *4; see also Rijhwani, 2014 WL 890016, at

8

*7. Put simply, HOLA preemption applies where the allegations concern actions taken by a

9

federal savings association or bank, even if that federal savings association is later acquired by a

Wachovia could raise about its own conduct, Wells Fargo itself cannot violate state laws when

12
Northern District of California

national bank.5 So, while Wells Fargo does inherit the liabilities and possible defenses that

11

United States District Court

10

servicing loans that were originated by an entity regulated by HOLA. See In re Toliver, 464

13

B.R. 720, 739 (Bankr. E.D. Ky. 2012) (holding that "the Defendants should not be allowed to

14

hide behind a defense created solely for the [savings association], a non-party, in order to defeat

15

allegations made against the Defendants that are unrelated to any acts of that non-party.")
Wells Fargo also argues that Plaintiff's state law claims relate to the “processing” or

16
17

“servicing” of Plaintiff's loan and request for a loan modification, and thus, are preempted by

18

HOLA. (Def.’s Mot. at 7.) Defendant bases this on § 560.2(b), which defines the scope of

19

HOLA, and provides the types of laws that are preempted, including state laws purporting to

20

impose requirements on federal savings banks regarding: “Processing, origination, servicing,

21

sale or purchase of, or investment or participation in mortgages.” 12 C.F.R. § 560.2(b)(10). As

22

discussed above, Plaintiff’s claims concern Wells Fargo’s conduct that occurred after it acquired

23
24
25
26
27
28

5

This would not change the outcome of those cases where the alleged conduct occurred at the
time of origination or prior to the merger of the federal savings bank with a national bank. To the
extent that this court has found HOLA preemption applied to conduct committed by Wells Fargo
after the acquisition of a federal savings loan, plaintiffs either did not address HOLA
preemption, conceded that HOLA preemption applied to Wells Fargo’s conduct, or only
advocated that HOLA did not preempt certain claims (i.e. fraud). None of those few cases asked
the court to rule on whether Wells Fargo could avail itself of HOLA preemption for its postacquisition conduct.
15

1

Wachovia. Accordingly, even if Plaintiff's state law claims do relate to the “processing” or

2

“servicing” of Plaintiff's loan, Wells Fargo cannot assert HOLA preemption.
For the reasons set forth above, causes of action based on conduct by a national bank

3
4

after acquisition of a federal savings loan do not implicate HOLA. Rijhwani, 2014 WL 890016,

5

at *7. Since all of the alleged wrongful conduct in this matter occurred long after Wachovia

6

merged into Wells Fargo, and was allegedly committed by Wells Fargo personnel, Wells Fargo

7

may not assert HOLA preemption. See id. 6

8

C.

Motion to Dismiss

9

Since Wells Fargo is not deemed to enjoy the benefit of HOLA preemption on the

10

grounds that it acquired a loan originated by a federal savings bank, the Court will address Wells

11

Fargo’s remaining arguments.7

Northern District of California

United States District Court

12

1. California Civil Code § 2924

13

Plaintiff's first cause of action is for wrongful foreclosure in violation of California Civil

14

Code § 2924. Section 2924(a)(l)(C) requires that the beneficiary of the deed of trust include a

15

statement in the notice of default that describes "the nature of each breach actually known to the

16

beneficiary and of his or her election to sell or cause to be sold the property to satisfy that

17

obligation and any other obligation secured by the deed of trust or mortgage that is in default."

18

Here, Plaintiff alleges that Defendant's NOD violated § 2924(a)(1)(C) because it

19

inaccurately stated that Plaintiff was in default on the loan as of December 1, 2012. (FAC ¶ 24.)

20

Plaintiff, however, alleges that she made, and Defendant accepted, payments until February

21

2013. Id. In addition, Plaintiff alleges that when she called Wells Fargo to make a payment in

22

April 2013, a representative informed Plaintiff that she owed approximately $3,000. (Id. ¶ 25.)

23

One month later, Defendant's NOD provided that the amount in arrears was $9,441.65. (Id.) As

24

such, Plaintiff alleges that the statement is inaccurate and improperly inflated with late fees and

25

attorneys’ fees. (FAC ¶ 25.)

26

6

27
28

Wells Fargo does not address other types of preemption, so the Court need not consider the
conflict preemption that applies to national banks.
7
Additionally, Wells Fargo argues that Plaintiff has not alleged sufficient facts to establish that
any violation of HBOR was “material.” (Def.’s Mot. at 18.) Whether an alleged violation was
“material” is a question of fact and is inappropriate for disposition at this juncture.
16

In response, Defendant seeks to dismiss Plaintiff’s § 2924 cause of action on various

1
2

grounds, including lack of tender and failure to allege that she suffered prejudice from the

3

deficiencies in the NOD. (See Def.’s Mot. at 12-13.).

4

The Court was unclear whether there was any relief available for violations of § 2924, so

5

the Court ordered the parties to submit supplemental briefing regarding what statutory remedy, if

6

any, would be available to Plaintiff should she prevail on this claim. In her supplemental brief,

7

Plaintiff relies on Ragland v. U.S. Bank, N.A., 209 Cal. App. 4th 182 (2012), in support of her

8

position that there is an implied private right of action. (Pl.’s Suppl. Brief at 4.) Ragland,

9

however, addressed whether there was an implied private right of action under § 2924g(d),

2924 simply states the requirement for initiating a non-judicial foreclosure. Violations of these

12
Northern District of California

which dictates how a foreclosure sale must be conducted, including notice requirements. Here, §

11

United States District Court

10

requirements, as well as the statutory damages, are separately addressed in other sections of the

13

Civil Code. Plaintiff, in fact, concurrently alleges claims for some of these violations. See, e.g.,

14

Cal. Civ. Code § 2924.17 (failure to verify documents), § 2923.6 (dual tracking), § 2924.10

15

(failure to acknowledge receipt of loan modification application).
Plaintiff also cites Nissim v. Wells Fargo Bank, N.A., in support of her tenuous

16
17

proposition that monetary damages are available for every violation of § 2924. C 12-1201 CW,

18

2013 WL 192903, at *10 (N.D. Cal. Jan. 17, 2013).8 This reliance is misplaced, as the Nissim

19

court granted leave to amend to plead specific facts, as well as “to identify the particular

20

subsection of section 2924 that he alleges Defendants have violated and, if a trustee's sale has

21

taken place, to plead tender adequately.” Id. Presumably this would also require Plaintiff to

22

identify the appropriate relief.
Accordingly, the Court dismisses Plaintiff’s § 2924 claim with leave to amend to identify

23
24

the applicable statutory authority for recovery, as the Court does not believe that it is authorized

25

to provide monetary damages for a violation of § 2924 as it was excluded from § 2924.12, which

26
27
28

8

Plaintiff failed to provide a citation for this case, so the Court assumes that this is the proper
citation.
17

1

explicitly provides for statutory damages for various violations of HBOR and, therefore, the

2

non-judicial foreclosure scheme.

3

2. California Civil Code § 2924.17

4

Plaintiff's second cause of action is titled “Violation of California Civil Code § 2924.17.”

5

Section 2924.17 provides that before recording or filing a notice of default (NOD), a notice of

6

sale (NOS), as well as other specified documents, “a mortgage servicer shall ensure that it has

7

reviewed competent and reliable evidence to substantiate the borrower’s default and the right to

8

foreclose, including the borrower’s loan status and loan information.” Cal. Civ. Code §

9

2924.17(b).

10

Plaintiff alleges that Defendant violated § 2924.17(b) by recording a NOD that was

Northern District of California

inaccurate without having reveiewed competent and reliable evidence to substantiate Plaintiff’s

12
United States District Court

11

default. (FAC ¶ 30.) Plaintiff asserts the NOD stated that payment had not been made for

13

installment of principal and interest which became due on December 1, 2012 and all subsequent

14

installments. Id. Plaintiff, however, alleges that she made, and Defendant accepted, payments

15

until February 2013. Id. Plaintiff again provides that a Wells Fargo representative stated that she

16

owed approximately $3,000 in April and just a month later, the NOD stated that she owed

17

$9,441.65. Id. Based on the inaccuracy of Defendant's evidence, Plaintiff alleges that

18

Defendant unlawfully sold her property. Id.

19

In response, Defendant asserts that Plaintiff fails to allege sufficient facts supporting her

20

§ 2924.17 claim because Plaintiff's allegations are "conclusory allegations and assumptions."

21

(Def.'s Mot. at 16.) Defendant also provides that the payments Plaintiff made up through

22

February 2013 had been applied towards her December 2012 mortgage payment and thus, the

23

information provided in the NOD is not incorrect. (Def.’s Mot. at 13-14.)

24

Since the Court takes Plaintiff's allegations as true, the Court finds that the substantial

25

increase in the amount of Plaintiff’s purported arrears in the NOD could be explained by

26

Defendant’s failure to verify the amount with competent and reliable evidence. Defendant

27

contends that the payments it accepted from Plaintiff until February 2013 were applied towards

28

Plaintiff's December 2012 mortgage payment, the $6,411.65 difference between the amount

18

1

owed in April 2013 to May 2013. This, however, is a question of fact rather than law, and

2

would be more appropriately addressed on summary judgment. Accordingly, Plaintiff alleges

3

sufficient facts to support her allegation that Defendant did not review competent and reliable

4

evidence regarding her loan prior to recording the NOD.

5

Thus, Defendant’s motion to dismiss Plaintiff's § 2924.17 cause of action is denied.

6

3. California Civil Code § 2923.6

7

Plaintiff’s third cause of action is titled “Violation of California Civil Code § 2923.6,”

8
9
10
11

Northern District of California

United States District Court

12
13

which prohibits dual tracking. Section 2923.6(c) provides:
If a borrower submits a complete application for a first lien loan
modification offered by, or through, the borrower's mortgage servicer, a
mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not
record a notice of default or notice of sale, or conduct a trustee's sale, while
the complete first lien loan modification application is pending . . . until . . .
the mortgage servicer makes a written determination that the borrower is not
eligible for a first lien loan modification, and any appeal period . . . has expired.

14

(Emphasis added.) The statute further provides that “the borrower shall have at least 30 days

15

from the date of the written denial to appeal the denial and to provide evidence that the mortgage

16

servicer’s determination was in error.” Cal. Civ. Code § 2923.6(d).

17

Plaintiff alleges that Defendant breached this statute by recording the NOD, NOS, and

18

conducting a trustee’s sale while Plaintiff’s first lien loan modification application was pending.

19

(FAC ¶ 38.) Prior to the filing of the NOD, Enrico contacted Defendant on behalf of Plaintiff in

20

February 2013 to request a loan modification, and on March 14, 2013, Plaintiff received a letter

21

from Wells Fargo through its representative Britni Ridge, with a loan modification application

22

and a list of required documents. (FAC ¶ 39.) Plaintiff alleges that she sent out the loan

23

modification application with the required documents to Wells Fargo in April 2013. (FAC ¶ 40.)

24

Nonetheless, Defendant recorded a NOD on May 20, 2013. (FAC ¶ 40.) In June 2013, Enrico

25

called Wells Fargo and was transferred to a Wells Fargo representative who informed him that it

26

was not illegal to foreclose on the property while a loan modification application was pending.

27

(FAC ¶ 41.) Although Plaintiff had not received a written decision on the loan modification

28

application, Defendant recorded a Notice of Trustee’s Sale on August 23, 2013 and on

19

1

September 16, 2013, the Property was sold. (FAC ¶ 42.) Plaintiff further alleges she was never

2

informed of the result of her modification application, and thus, Defendant failed to offer an

3

opportunity to appeal the decision, thereby “eviscerating Plaintiff’s statutory right to appeal

4

pursuant to the Civil Code.” (FAC ¶ 43.)

5

In its motion to dismiss, Defendant contends that Plaintiff cannot prevail on a claim

6

under § 2923.6 because it is preempted by HOLA, and Plaintiff fails to allege that she complied

7

with the statute. (Def.'s Mot. at 16.) As provided above, HOLA does not preempt this cause of

8

action, because the conduct at issue is attributed to Wells Fargo rather than Wachovia.

9

Defendant further contends that compliance with § 2923.6 is conditioned upon the

17.) The Court finds that Plaintiff pleads facts to support the inference that she submitted a

12
Northern District of California

borrower having submitted a complete application as defined in § 2923.6 (h). (Def.’s Mot. at

11

United States District Court

10

complete loan modification application, but fails to clearly plead that the application as

13

submitted was complete as required by statute. (See FAC ¶ 40; Pl.’s Opp’n at 19.) The Court

14

notes that according to the allegations in the complaint, Wells Fargo never responded to

15

Plaintiff’s application at all, and, thus, did not notify Plaintiff that the application was

16

incomplete or that the application was not otherwise considered by Wells Fargo for

17

modification. Plaintiff must, nevertheless, amend to clearly plead that the application that was

18

submitted was a complete application, as required by § 2923.6(h).

19
20
21
22

Accordingly, the Court grants Wells Fargo's motion to dismiss Plaintiff's § 2923.6 cause
of action with leave to amend to plead that the application was complete.
4. California Civil Code § 2923.7
Plaintiff's fourth cause of action is titled “Violation of California Civil Code § 2923.7,”

23

which requires the lender to assign a Single Point of Contact (SPOC). Section 2923.7(a)

24

provides that when a borrower requests a foreclosure prevention alternative, “the mortgage

25

servicer shall promptly establish a single point of contact and provide to the borrower one or

26

more direct means of communication with the single point of contact.” The SPOC shall be

27

responsible for:

28

20

(1) Communicating the process by which a borrower may apply for an available
foreclosure prevention alternative and the deadline for any required submissions to be
considered for these options.

1
2

(2) Coordinating receipt of all documents associated with available foreclosure
prevention alternatives and notifying the borrower of any missing documents necessary
to complete the application.

3
4

(3) Having access to current information and personnel sufficient to timely, accurately,
and adequately inform the borrower of the current status of the foreclosure prevention
alternative.

5
6

(4) Ensuring that a borrower is considered for all foreclosure prevention alternatives
offered by, or through, the mortgage servicer, if any.

7
8

(5) Having access to individuals with the ability and authority to stop foreclosure
proceedings when necessary.

9

requested a loan modification in February 2013, who sent Plaintiff a loan modification

12
Northern District of California

Cal. Civ. Code § 2927(b). Plaintiff alleges that Wells Fargo assigned a SPOC after Enrico

11

United States District Court

10

application along with a letter that stated that during the review period, Plaintiff’s home would

13

not be referred to foreclosure or sold at a foreclosure sale. (FAC ¶¶ 10-12.) In addition, the

14

letter also stated that if Plaintiff did not qualify for a loan modification, Defendant would work

15

with Plaintiff to explore other options available to help keep the home. Id. Plaintiff alleges,

16

however, that the assigned SPOC failed to communicate and timely inform Plaintiff of the

17

current status of her loan modification. (FAC ¶ 49.) After Enrico submitted the loan

18

modification application, Enrico called the SPOC numerous times to inquire as to the status of

19

Plaintiff's application, but Ms. Ridge failed to return any of his calls. Id.
In response, Defendant alleges that HBOR is not applicable to plaintiff’s claims for a

20
21

violation of § 2923.7, because the statute is preempted by HOLA. (Def.'s Mot. at 17.) Again,

22

the Court adopts the position that Wells Fargo cannot assert HOLA preemption for actions taken

23

by Wells Fargo employees simply by virtue of the loan having originated with a federal savings

24

bank.

25

Defendant further alleges that lenders and loan servicers are not required to volunteer a

26

SPOC to every borrower, but rather, borrowers must affirmatively request a SPOC. (Def.’s Mot.

27

at 17.) To the contrary, the statute states that “[u]pon request from a borrower who requests a

28

foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point

21

1

of contact....” Cal. Civ. Code § 2923.7. A plain reading of the statute requires Wells Fargo to

2

assign a SPOC when a borrower requests a foreclosure prevention alternative. It does not

3

require a borrower to specifically request a SPOC. Plaintiff sufficiently alleges that Enrico

4

contacted Wells Fargo to request a loan modification, which is a request for “a foreclosure

5

prevention alternative.” (See FAC ¶ 10.) Thereafter, Wells Fargo assigned a SPOC. (FAC ¶ 11.)

6

Plaintiff then sets forth the specific facts in support her allegation that the SPOC failed to

7

communicate and otherwise violated § 2923.7. (See FAC ¶¶ 49-51.)

8
9

Accordingly, Plaintiff has sufficiently pleaded a violation of § 2923.7 and
Defendant’s motion to dismiss this cause of action is denied.

10

5. California Civil Code § 2924.10

11

Plaintiff's fifth cause of action is titled “Violation of California Civil Code § 2924.10.”

Northern District of California

United States District Court

12

Section 2924.10(a) provides: "[w]hen a borrower submits a complete first lien modification

13

application or any document in connection with a first lien modification application, the

14

mortgage servicer shall provide written acknowledgment of the receipt of the documentation

15

within five business days of receipt." In its initial acknowledgement of receipt of the loan

16

modification application, the mortgage servicer has to include information such as an estimate of

17

when a decision on the loan modification will be made, any expiration dates for submitted

18

documents, and any deficiency in the application. Id.

19

Plaintiff alleges that Defendant violated California Civil Code § 2924.10 by failing to

20

provide acknowledgment of receipt of Plaintiff’s loan modification application within five days

21

of receipt or at any point after she submitted the application, an estimate of when a decision on

22

the loan modification would be made, any expiration dates for submitted documents, and any

23

deficiency in the application. (FAC ¶ 58.)

24

Defendant argues that Plaintiff’s cause of action is factually deficient on the grounds that

25

Plaintiff fails to state when the application was purportedly submitted, by what means, when

26

Wells Fargo would have received the application. (Def.'s Mot. at 18.)

27
28

The first amended complaint alleges that, in or around April 2013, Enrico sent in “the
loan modification application along with the required documents to Defendant,” and never

22

1

received acknowledgement that Wells Fargo received the application. (FAC ¶ 58.) Section

2

2924.10(a) requires Defendant to acknowledge receipt of “a complete first lien modification

3

application or any document in connection with a first lien modification application,” and to then

4

provide Plaintiff with information as to any deficiency in the application, and to process the

5

application to determine whether or not Plaintiff qualified for the loan modification. Cal. Civ.

6

Code § 2924.10(a).

7

Accordingly, Plaintiff pleads sufficiently facts that a first lien loan modification

8

application was submitted in April 2013 and that she never received an acknowledgement of

9

receipt in violation of § 2924.10, so the Court denies Defendant’s motion to dismiss as to

6. Negligence

12
Northern District of California

Plaintiff's fifth cause of action.

11

United States District Court

10

Plaintiff's sixth cause of action is for negligence. Under California law, to prove

13

negligence a plaintiff must plead and prove: (1) defendant's legal duty of care toward plaintiff,

14

(2) defendant's breach of that duty, (3) damage or injury to plaintiff, and (4) a causal relationship

15

between defendant's negligence and plaintiff's damages. Palm v. United States, 835 F. Supp.

16

512, 520 (N.D. Cal 1993). Generally, lenders do not owe borrowers a duty of care unless their

17

involvement in the loan transaction exceeds the scope of their “conventional role as a mere

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lender of money.” Nymark v. Heart Fed. Savings & Loan Ass'n, 231 Cal. App. 3d 1089, 1095–

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96 (1991); see also Rijhwani v. Wells Fargo Home Mortgage, Inc., C 13-05881 LB, 2014 WL

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890016, at *14 (N.D. Cal. Mar. 3, 2014).

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Plaintiff alleges that as the beneficiary and servicer of her loan, Defendant had a duty to

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use reasonable care in handling her loan and providing accurate reinstatement figures. (FAC ¶

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63.) When Enrico called Wells Fargo in April 2013 to make a payment, the representative

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refused to take the payment stating that Plaintiff had to pay the full amount owed (about $3,000).

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(Id. ¶ 64.) One month later, the NOD stated that $9441.65 was due. Id. Essentially, Plaintiff

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argues that Defendant breached its duty by providing inaccurate reinstatement amounts, thereby

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interfering with Plaintiff's right to reinstate.

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1

Defendant responds by asserting that at no point does Plaintiff allege that she "requested

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a reinstatement quote, desired to reinstate her loan, was deterred from reinstating her loan, or

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ever had an intent to reinstate her loan." (Def.’s Mot. at 20.) Defendant further asserts that

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"liability to a borrower for negligence arises only when the lender 'actively participates' in the

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financed enterprise 'beyond the domain of the usual money lender.'" Nymark, 231 Cal.App.3d

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1089, 1095 (quoting Wagner v. Benson, 101 Cal. App. 3d 27, 35 (1980).

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Here, Plaintiff did not seek to reinstate the loan, nor plead that she had the ability to

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reinstate the loan. Instead, she was requesting a loan modification. Federal district courts in

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California are divided on when lenders owe a duty of care to borrowers in the context of the

Rijhwani, 2014 WL 890016, at *15-16. Based on the facts currently alleged in the first amended

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Northern District of California

submission of loan modification applications and negotiations related to loan modifications. See

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United States District Court

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complaint, Wells Fargo did not owe a general duty to Plaintiff in servicing her loan or providing

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information regarding reinstatement.

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Once Wells Fargo, however, provided Plaintiff with a loan modification application and

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asked Plaintiff to submit supporting documentation, and she did so, “Defendant undertook the

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activity of processing Plaintiff’s loan modification request. Having undertaken that task, it owed

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Plaintiff a duty to exercise ordinary care in carrying out the task.” Garcia v. Ocwen Loan

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Servicing, LLC, C 10-0290 PVT, 2010 WL 1881098, at *4 (N.D. Cal. May 10, 2010); see also

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Rijhwani, 2014 WL 890016, at *16. In order to determine “whether a financial institution owes

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a duty of care to a borrower-client,” courts must balance the following non-exhaustive factors:
[1] the extent to which the transaction was intended to affect the plaintiff, [2] the
foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered
injury, [4] the closeness of the connection between the defendant's conduct and
the injury suffered, [5] the moral blame attached to the defendant's conduct, and
[6] the policy of preventing future harm.

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Nymark, 231 Cal. App. 3d at 1098 (quotation marks and citations omitted).

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In the processing of a loan modification application, the transaction is unquestionably

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intended to affect Plaintiff, as the decision would determine whether or not she could keep her

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home. Second, the potential harm from mishandling the application is readily foreseeable as it is

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the loss of an opportunity to keep her home. Third, the injury to Plaintiff is certain, as Plaintiff

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1

lost her opportunity to potentially modify her loan and her home was sold. Fourth, there is a

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close connection between Wells Fargo’s conduct of allegedly not processing the application and

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the sale of Plaintiff’s home. Fifth, whether or not moral blame attaches to Wells Fargo’s

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conduct is unclear at this state of the litigation, but the uncertainty is insufficient to find that

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there was no duty of care. See Garcia, 2010 WL 1881098, at *3. Sixth, California’s enactment

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of HBOR and the federal government’s home owner assistance programs, such as HAMP, shows

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the existence of the public policy of preventing future harm to borrowers caught in the

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foreclosure crisis.
In light of the above, Wells Fargo did not owe Plaintiff a duty of care in terms of

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Plaintiff is, however, granted leave to amend the sixth cause of action to allege negligence under

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Northern District of California

providing accurate information regarding reinstatement, so the negligence claim is dismissed.

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United States District Court

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the theory that Wells Fargo owed a duty to exercise ordinary care in processing Plaintiff’s loan

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modification application.
7.

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Unfair Competition Law

Plaintiff's final cause of action is titled "Unfair Competition – Violation of Business and

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16

Professions Code § 17200 et seq." Section 17200 concerns unfair competition and prohibited

17

activities and states that “unfair competition shall mean and include any unlawful, unfair or

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fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. Each prong of the UCL is

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a separate and distinct theory of liability. Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718,

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731 (9th Cir. 2007). In order to state a claim for UCL, Plaintiff must identify an underlying

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statute that Defendant violated. Ingels v. Westwood One Broad. Servs., Inc., 129 Cal. App. 4th

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1050, 1060, 28 Cal. Rptr. 3d 933, 938 (2005) (no § 17200 liability “for committing ‘unlawful

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business practices’ without having violated another law”). A business practice is “unlawful,” in

24

violation of the California Unfair Competition Law (UCL), if it violates another state or federal

25

law; the UCL “borrows” violations of other laws and treats them as independently actionable.

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Perea v. Walgreen Co., 939 F. Supp. 2d 1026, 1040 (C.D. Cal. 2013).

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///

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///

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1

Plaintiff alleges that Defendant’s violations of California Civil Code §§ 2924, 2924.17,

2

2923.6, 2923.7, 2924.10, and negligence constitutes unlawful conduct under California Business

3

and Professions Code § 17200 et seq. (FAC ¶¶ 67-73.)

4

Defendant alleges that the UCL claim should be dismissed because Plaintiff relies on

5

defective statutory and common law claims in the complaint to support the UCL claim. (Def.'s

6

Mot. at 22.) The Court does agree that Plaintiff’s negligence claim is not a basis for the UCL

7

claim, but that, in the absence of HOLA preemption, Plaintiff has provided sufficient facts to

8

show that Wells Fargo’s actions were unlawful under HBOR. Thus, even in the event that

9

Plaintiff is unable to amend to sufficiently allege a cause of action under § 2924, Plaintiff has a

10
11

sufficient statutory basis to bring a UCL claim.
Accordingly, Defendant’s motion to dismiss the UCL cause of action is denied.
IV.

Northern District of California

United States District Court

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15

CONCLUSION

In light of the above, Defendant Wells Fargo’s request for judicial notice is
GRANTED.
The Court further GRANTS IN PART AND DENIES IN PART Defendant’s

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motion to dismiss. Plaintiff’s first, third, and sixth causes of action are dismissed with

17

leave to amend consistent with this order. All other causes of action survive. Plaintiff shall

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file her second amended complaint within 14 days of this order.

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IT IS SO ORDERED.
Dated: June 11, 2014

___________________________
KANDIS A. WESTMORE
United States Magistrate Judge

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